TOI Budget Special: Watch out for tax on equity investments

NEW DELHI: If you believe in building wealth with equity investments, make sure you read the fine print when Budget 2018 is out. According to reports, finance ministry is actively considering the introduction of tax on long term capital gains (

LTCG

) from equities or raise the holding period for long-term tax exemption from one to three years in the budget.
LTCG and the current status
Currently, if you hold any equity share or any equity mutual fund unit for a period of more than 12 months, any gains made on it are treated as long term capital gains and are exempted from tax. However, if you sell your equity holdings before one year then it is treated as short-term capital gains and taxed at 15 per cent.

Abolition of LTCG
In 2005, India became one of the most liberal markets in the world when it abolished the tax on long-term capital gain on equities and instead imposed a security transaction tax (

STT

) to make up the loss. The decision benefited domestic investors who were at great disadvantage vis-a-vis Mauritius investors and enjoy exemption on capital gain on transfer of Indian securities as per treaty signed between India and Mauritius in 1992. Currently, there are only five countries that don’t tax capital gains on equities.

Case for return of LTCG
The case for reintroduction of tax on LTCG is being attributed to the fact that India’s tax collection to GDP (gross domestic product) ratio is the lowest within G-20 countries. The Bombay Stock Exchange pegs the loss to the exchequer at Rs 49,000 crore annually for not charging LTCG.


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